“Start with the ideathat you can't repealthe laws of economics.Even if they areinconvenient.”—LarrySummers87

Why It Matters Certain people and institutions play impor-tant roles in your life. For example, yourparents, teachers, and friends are impor-tant. Government is an institution that also plays animportant part in your life. It determines such things aswhen you can get a driver’s license, the amount of taxesyou must pay, and when you will be able to vote.Markets also have a major impact on your life. A mar-ket is any place where people come together to buyand sell goods or services. Markets determine whatprices you pay for computers, cars, television sets,books, and clothes. Markets also determine what peo-ple earn as teachers, truckdrivers, television and moviestars, baseball players, andnurses. How much moneyyou earn in the future willdepend on markets. If you are interested in theprices you pay for the goodsand services you buy, or inwhy some people earnhigher salaries than others,then you will be interested inlearning how markets work.The first step is to learn aboutdemand, the subject of thischapter. 88Shopping for a more pow-erful computer and the lat-est software program canbe fun. Whether or notthese shoppers decide tomake a purchase willdepend on their willing-ness and ability to buy,conditions you will learnmore about in this chapter.

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The following events occurred one dayin June.9:03 A.M.Sam is a student at a technical college in NewYork City. He is currently working on one of the computers in theschool library. He’s not doing any research right now; instead,he’s online checking the prices of various stocks. He recentlyinherited some money and is thinking of investing it in the stockmarket. He checks the share price of various stocks: GeorgiaPacific, General Motors, Microsoft, and Dell. He is thinkingabout buying 100 shares of Dell, current price $39.35. He isabout to place his order online with his online broker, whenhe has second thoughts. A friend of his told him that theprice of tech stocks, including Dell, would probably begoing down this week. Maybe, Sam thinks, I should waituntil later to buy this stock.• What does the (expected) future price of a share ofstock have to do with buying stock today?10:41 A.M.A U.S. senator is in his officetalking with his staff. He is concerned about teenagesmoking in America. He wonders whether he, as aU.S. senator, can do anything to reduce the amountof teenage smoking. One member of his staff saysthat the federal government should increase the taxon a pack of cigarettes. “That way,” he says, “a lot ofthese kids will stop smoking.” “How so?” asks thesenator. “The tax will push up the overall price ofcigarettes,” the staffer says, “and that will lead toteens buying fewer cigarettes.” Another stafferenters the conversation. “I am not so sure manyteens will stop smoking,” she says. “If they are

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